The University of Florida could save $150 million over the next 27 years if it buys the 21-year-old cogeneration plant on Mowry Road on the UF campus from Duke Energy.

By Jeff SchweersStaff writer

The University of Florida could save $150 million over the next 27 years if it buys the 21-year-old cogeneration plant on Mowry Road on the UF campus from Duke Energy and operates it on its own, an energy consultant hired by the university reported.

Concord Engineering, a New Jersey-based consultant, said UF's best option going forward as its 22½-year contract with Duke expires in December is to buy the plant and upgrade it to provide all the electricity and steam needs for the main campus.

UF commissioned the study in preparation for the negotiations underway on Duke's contract renewal and has been discussed with the appropriate UF administrators and Duke's negotiating team, said Curtis Reynolds, UF vice president of business affairs.

Whether the recommended option or any of the other eight scenarios contemplated will be approved is uncertain, he said.

“The Concord optional scenarios are not certain to be included as component to the structured outcome,” Reynolds said. It is his responsibility to negotiate a deal in the best interest of the university, he added.

“What I'm looking at are the long-term energy needs of the university,” Reynolds said.

Duke and its predecessors have been providing electricity and steam from the cogeneration plant for 21 years, under an agreement struck at a time when UF was looking to exert greater control over its energy bill.

No other arrangement like it exists in Florida, state regulatory officials said.

The plant generates steam to heat buildings and produces electricity that Duke sends out on the grid and sells back to UF at the commercial rate set by the Public Service Commission. The rates for steam are set by mutual agreement between UF and Duke.

Under current rates, UF pays Duke $38 million a year for electricity and $3.2 million a year for steam, Reynolds said.

Concord Engineering used the current agreement with Duke as the basis for examining nine different scenarios to determine which of those would save UF the most money in the long run. The consultant looked at those options over a 27-year life cycle for the plant.

The options range from continuing under the existing contract to demolishing the existing plant and building a new, more efficient state-of-the-art plant in its place.

Leaving things as is would result in no new net savings, Concord said.

Three scenarios were analyzed in which UF bought the plant at fair market value and reconfigured it to supply onsite power and add a new substation for interconnect and distribution. All three options would require a capital outlay of $38 million to $60 million, net long-term savings in the $130 million to $150 million range, and yield annual savings of $9.4 million to $10.9 million.

One option — expanding the existing Lacy Rabon plant to meet all the campus steam needs — would not benefit UF in the long run or provide it an attractive cost savings, it said.

Five other scenarios called for the demolition of the existing plant and construction of a newer, more energy-efficient plant, in some cases at a much higher capital outlay without producing a much higher annual or net overall savings.

Concord recommended Option 4 as the best for UF overall. Under that best-case scenario, UF would save $10.5 million in annual operating costs and $150 million over the life of the plant if it owned the plant and ran it, the report said. Even if it partnered with a third party to own and operate the plant, UF would save $2.5 million in operational costs and $70 million over the life of the plant, the report said.

UF would have to spend $46 million to install a new back-pressure steam turbine and reconfigure the plant for onsite use and add a new substation. The plant would supply electric power and nearly all of UF's steam.

Option 4 would also give UF the ability to connect directly to the Florida Gas Transmission system, saving UF $48 million. UF could either build a direct connection to the pipeline or buy or lease the existing pipeline serving the plant.

That existing pipeline is owned by Gainesville Regional Utilities, which provides the natural gas that powers the cogeneration plant.

Concord recommended that UF buy the plant at fair market value, and negotiate to attain the Florida Gas Transmission FT-1 gas rate to achieve the maximum savings over the 25-year life of the plant.

The consultant also recommended that UF pursue discussions to use the existing switchgear stations from Duke to avoid the cost of building a new substation of its own.

The consultant provided its own assessment and fair market value for the plant, setting its value at around $19.5 million taking into consideration the plant's age, its remaining useful life, its salvage value and the amount UF would have to spend on upgrades.

“We recommend that UF propose a purchase of this facility … as it is in the best interest of both parties,” Concord Engineering said.

An onsite cogeneration plant supplies electric power “behind the meter to a retail customer displacing the need for electric power from the regulated public utility,” the consultant said.

Such a plant has to meet regulations adopted by the Florida Public Service Commission governing the sale of excess power to the grid, interconnection standards, definitions and qualifying criteria.

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